Fund Call . Quantum Long Term Equity Value: Standing the test of market meltdown - BUY

“Only when the tide goes out do you discover who’s been swimming naked.” - Warren Buffet.

Quantum Long Term Equity Value seems well-covered, as seen in its performance during the ongoing market meltdown. Over the past three months, the fund has held steady while most of its large-cap peers and also the benchmark — S&P BSE Sensex Total Returns Index — have slipped.

Over the past six months, and one year, too, the fund’s positive returns are in contrast to the knock taken by many of its peers.

While 3-6 months, or even a year, is too short a period to judge a fund, its performance in recent times is in keeping with its reputation of containing downsides well.

This is an outcome of a combination of a strict value-investing philosophy and risk aversion that sees the fund exit stock holdings and take big cash calls when it finds the market and stocks overvalued.

This approach often results in the fund under-performing its peers and its benchmark during raging bull markets. But it holds the fund in good stead when the tables turn and the market reverses, as is the case now. In such situations, the fund does not slip very badly and is also well-positioned to deploy the cash to buy value picks.

Large-cap dominated

Besides, the predominance of relatively stable large-cap stocks in its portfolio helps the fund tackle market weaknesses better. The combination of downside protection and participation in upsides has translated into the fund delivering robust mid-teen returns over the long-run — around 16 per cent annualised over five and 10 years.

This positions Quantum Long Term Equity Value in the top quartiles among peers and ahead of its benchmark over long periods. The fund is a good choice for those looking for a long-term investment in a high-quality, large-cap value player.

It helps that the fund’s expense ratio (less than 1.5 per cent) is much lower than the category average; this improves returns for investors.

Besides its philosophy of keeping costs low, the fund’s buy-and-hold strategy in a compact portfolio of less than 25 stocks also helps keep the expense ratio under check. From about 8 per cent of its portfolio two years ago, the fund has been steadily increasing its cash position to 17-20 per cent over the past year or so.

This conservative positioning resulted in the fund under-performing until not so long ago when the markets were on a roll. But it will likely help the fund in the present changed market dynamics, as has been the case in the past, too.

Over the past year, the fund has added only two stocks (ACC and LIC Housing Finance) to its portfolio, while also fully exiting only two (Tata Chemicals and Bharti Airtel).

The fund’s increased bets on stocks such as Tata Steel and Lupin have paid off well, with these investments gaining about 70 per cent over the past year.

Unlike many other peers, Quantum Long Term Equity Value has had relatively low exposure to banking stocks — this would have shielded it better from the steep correction in the sector’s stocks in recent times.

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